FCC, FTC Put Telemarketing Under a Microscope

For the past year and a half, the teleservices industry has waited for the other shoe to drop - that is, the inevitable enforcement actions to back up 2003's new telemarketing regulations.

The wait is officially over.

The Federal Trade Commission and Federal Communications Commission have served notice that compliance with federal telemarketing regulations is a high-stakes game indeed.

The FTC fired the first shots across the bow in late 2003 in the form of Civil Investigative Demands sent to numerous telemarketers and sellers. The purpose of the CIDs was (and is) straightforward: to determine whether any laws administered by the FTC have been violated. This broad purpose contrasts sharply with the document's very detailed nature and information demands. Virtually every aspect of a telemarketer's business and calling operations is subject to intensive review.

Each of the four areas covered by this CID (background information; no-call-related records; abandoned-call records; and policies/procedures) pose compliance and reporting challenges for even the most sophisticated company. For those who receive such CIDs, responding must be an onerous task. However, a company stands to benefit from "reverse engineering" the CID to ensure that it has the policies and procedures in place to quickly and easily produce all the information demanded.

The CID requires companies to produce detailed documentation regarding every call made, divided according to campaign and/or seller. All calls made to any number on the national registry must be justified with proof of consent or existing business relationship.

The FTC also requires documents to establish all the elements necessary to meet the safe harbor requirements for abandoned calls. Finally, the FTC asks for a significant amount of information regarding the company itself, including corporate structure and governance, information about all employees involved with telemarketing and the procedures/processes in place to ensure compliance with DNC rules.

What does the FTC do with the information from a company's response? The nuts and bolts process the FTC uses to review the voluminous information is unknown. However, the results of this process are on display in the first DNC complaint filed by the FTC.

The entity between the FTC's enforcement cross hairs: a telemarketing company, Braglia Marketing Group, that makes calls on behalf of numerous sellers. The violations alleged include: 300,000 calls made to DNC numbers; 10,000 calls to numbers in area codes without the seller on whose behalf the company was calling first paying the national registration fee for those area codes; and numerous violations of the FTC's abandonment rules.

The complaint filed Aug. 30 seeks monetary civil penalties, a permanent injunction and other equitable relief. Setting aside the requested injunction and other equitable relief, the potential civil penalties are staggering. Not including the alleged abandoned-call violations, the FTC asks the court to award up to $3.4 billion in fines.

The FCC, not to be outdone, recently completed its first enforcement action for violation of the national DNC registry. The circumstances in this case are the exact opposite of the FTC's complaint.

In the FCC case, Primus Telecommunications Inc. hired a third-party telemarketer to make calls on its behalf. The FCC investigated and fined the company, but not the outsourced telemarketer as with the FTC.

Pursuant to a consent decree adopted Sept. 7, the company made a "voluntary" $400,000 contribution to the U.S. Treasury. Also, and of critical importance to the teleservices industry, the decree provides specific instructions to the company regarding the procedures it needs to implement to ensure and maintain compliance.

The FCC required Primus to implement a "Telemarketing Compliance Program" with these six components:

· Telemarketing Compliance Manual. This manual contains written policies and procedures regarding campaign management and the creation, approval and distribution of prospect lists to outside telemarketing companies. The manual must include information for ensuring compliance with national and in-house DNC requirements, the generation of daily reports regarding DNC complaints and in-house DNC requests, and audit procedures. All company employees and outside telemarketing vendors hired by the company must acknowledge in writing that they have read, understand and will abide by the terms of this manual.

· Training. All employees involved in telemarketing must receive: copies of the Telemarketing Compliance Manual; a FAQs document regarding national and in-house DNC list rules; flow charts depicting the process for handling DNC complaints and in-house DNC requests; and the firm's DNC policy statement. They must attend a training session (and acknowledge such attendance in writing) explaining company DNC policies and procedures. Such training must be completed within the first week of employment with refresher training at least once a year.

· Escalation plan. The company must prepare and distribute the plan by which identified DNC process breakdowns are addressed. The plan must identify a clear path of successive levels of escalation so the company can promptly identify and respond to data indicating a failure of telemarketing compliance.

· Contract provisions. Company contracts with outside telemarketing vendors must provide that: the vendor will comply with all applicable state and federal telemarketing laws; the vendor will comply with all of the company's policies and procedures as identified in the company's Telemarketing Compliance Manual; the vendor will transmit daily reports regarding DNC complaints and in-house DNC requests to the company; and violation of any of these provisions by the vendor are grounds for termination.

· Compliance auditing. Daily Telemarketing Company Reports must be generated by outside vendors hired by the company; weekly Customer Care Reports containing data culled from the daily reports must be generated for review by the company's DNC compliance team; and weekly Telemarketing Campaign Management Reports summarizing the status of compliance for each active telemarketing campaign must be generated for review by the company's legal department and at the vice president level.

· Failsafe DNC compliance. The company must institute mechanisms designed to prevent noncompliance with DNC rules due to human error.

Taken together, the FTC's CIDs and the FCC's consent decree provide an excellent roadmap for any entity seeking direction for telemarketing compliance practices. With the consequences of noncompliance rising ever higher, understanding exactly what is required is critical.

The scope of the procedures, processes and monitoring that must be deployed - together with the risks of noncompliance - have many companies turning to outside expertise for help in deploying the elements of a compliance program.

The FTC and FCC have signaled the critical importance of extensive and accurate recordkeeping, training, compliance auditing and monitoring and failsafe DNC mechanisms.

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